DLF IPO Scandal - Part 1

Sunday, August 27, 2006

DLF, the name sounds familiar ? Ofcourse. In short DLF is a shady company with shady operations and shady promoters. Well how can you expect realtors in India to be a transparent business house like Infosys ;-) Good Point. So by now you have realized and agree that Indian real estate market is all about black money :-) OK. Enough of this, justify the DLF scam.

DLF was a listed company until 2002-03, and the market value of each paid up share of Rs 10/- was Rs 88 /- as on 30-SEP-2002. In 2003 , its promoters increased their holding beyond 90%, admittedly in violation of SEBI's takeover code. DLF admitted to the lapse, paid a fine of Rs 5 lakh. DLF knew that the penalties in the Indian capital markets are much lower than the extent of scam the promoters and brokers conduct. Mere Rs5 Lakhs.

DLF then made an open offer to the public at Rs 320 per share to buy out minority shareholders and went private. The promoters of DLF today own 99.5% of its equity. The remaining 0.5% is held by investors who chose to stay on when DLF delisted the shares. Around 1,308 shareholders chose to hang on to their shares. Such shareholders invariably lose many of the privileges available to investors of listed companies, but since DLF intends to raise public money again—that too within three years of its September 2003 delisting—it cannot get away by leaving residual shareholders cheated.

Residual shareholders complain that the company made a rights issue of partially convertible debentures in a 1:1 ratio last year, but omitted to post the offer letter to 90% of the minority investors. The lucky 10% who got the letters & other means and will profit enormously are all closely connected with the company. These debentures have since been converted into 10 equity shares each. Further, the company made a bonus issue in the ratio of 7:1 and then split the face value of shares to Rs 2 each. Those who did not get the rights offer were thus deprived of 400 shares each against each share held on the record date. Since the promoter holding is 99.5%, it is clear they did not want to share the bonanza emanating from their massive capital restructuring exercise with the 1,100 investors who clung on to their share holding.

DLF’s vice chairman Mr Rajiv Singh insisted that the Offer Letters had been posted and that investors failed to apply for debentures because they did not see value in the company. But the company took care to build-in serious disincentives. The partly convertible debentures carried a 2% interest and were to be convertible anytime over the next 20 years. The letter also made the misleading claim that the company had no plans to re-list its shares on the stock exchanges. Naturally, minority shareholders have written to Sebi alleging breach of trust.

DLF may manage to fend off these charges and even get a clearance from the MCA, but it doesn’t bode well in the long term if the company is seen as one that does not care about its minority shareholders.

The DLF had offered the minority shareholders unsecured convertible debentures of Rs 100 each on rights basis in December 2005. The letter of offer were sent or not sent to the shareholders under UPC on December 23, 2005 mailed by an independent licensed bulk mailing agency is still under investigation. It all resulted a loss to minority share holders numbering 1308 to the tune of Rs. 1600.

1 Comments:

DLF has bribed officials also.How have they given two flats to M.Ramachandran the trhen Urban Development Secretary and his US Citizen sister two flats at a exhorbitantly low rate? Some body has to investigate this.